A capital gain generally happens when an individual sells something at a price, which is more the amount that has already been spent on it. Although most of it is found on the investments, but such rules are applicable for the personal properties as well. For example, buying a car for $5000 and then selling it at $7000 just a couple of weeks later makes one have a capital gain of $2000 in no time. And hence, one needs to pay taxes for it as well. Hence every taxpayer must know and understand some of the basic facts about capital gain taxes.
According to CAE Ryan Jacob, anyone who sells a capital asset must know that the capital gains tax may apply. And as the internal revenue service might point out, anything that an individual owns under his own name qualifies as a capital asset. That’s exactly where one brings in the issue of investment, such as stocks or property or even anything that falls under the personal use. A capital gain is not just what has been paid for it, and gained by selling it, but it also includes:
- The Sales Tax, Excise Tax and all other taxes and fees.
- Shipping and the Handling Cost.
- Installation and Setup Charges as well.
Apart from this, any money that is being spent on improvements and in due course of time increases the value of the asset, such as the new building or anything might add up to the basis as well. However, the depreciation of the asset will reduce the basis with time.
The single biggest asset that an individual ever owns in his life is the home, and depending on the growth and fall of the real estate market, the homeowner might realize a huge capital gain on the sale of the same. While some might be worried about the tax that needs to be paid while selling it, there is some good news for them as well. The tax code in most of the nations, allow the owners exclude some or all of such gains from the capital gains tax, as long as they tend to follow these conditions.
- If the owners have stayed in the same house for more than at least two years, in the five-year period before the sale.
- If the home is being used by the owner as his primary residence for at least two years in the same five-year period.
- If the owner has not excluded the gain from another home sale within the two-year period before the sale of the current house.
CAE Ryan Jacob says that if all these three conditions are met, the individuals can find an exemption of up to $250,000 on being single, and up to $500,000 if he’s married filing jointly. There are several such tricks to find some tax exemption which might be known only to the experts, and hence it is advisable to avail their suggestion before moving forward to selling the capital assets.